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Higher Business - Finance > Finance > Flashcards

Finance Flashcards

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1
Q

Name 6 short term sources of finance

A

Retained profits
Government grant
Sale of asset
Bank overdraft
Trade credit
Factoring

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2
Q

Describe sale of asset

A

Business sells peive of equipment

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3
Q

Describe a government grant

A

Lump sum of money firm receives from government, doesn’t need repayed

Firm can acheveive thus by meeting a requirement like locating in an area of high unemployment

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4
Q

Describe bank overdraft

A

When a bank allows the firm to exceed the funds in their account, intrest is still paid

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5
Q

Describe trade credit

A

Supplier will deliver supplies to firm and allow them to pay at a later date

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6
Q

Describe factoring

A

Firm will collect all outstanding debts and sell them onto another firm (for a lower price than would receive getting debts themselves but saves time)

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7
Q

Name 3 medium term sources of finance

A

Bank loan
HP
LEASING

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8
Q

Describe hire purchase

A

Firm will higher equipment and pay in instalments after last instalment firm takes ownership of equipment

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9
Q

Describe leasing

A

Firm rents a building or equipment for an agreed period of time

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10
Q

Describe bank loan

A

Bank provides firm with a lump sum of cash that is paid back in instalments with intrest

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11
Q

Name 4 long term sources of finance

A

Mortgage
Crowd funding
Venture capatilist
Debenture

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12
Q

Describe a mortgage

A

Loan given to firms to purchase a premises repaid in instalments with intrest

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13
Q

Describe crowd funding

A

Where firm will find a project by raising money from a large amount of people who contribute a small amount each

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14
Q

Describe a vaneture capatilist

A

Private investors that provide finance where banks deem the investment too risky (dragons den)

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15
Q

Positive and negative of sale of asset

A

No intrest to be payed

No longer have equipment

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16
Q

Positive and negative of grant

A

Doesn’t need repayed

Often have to meet requirements to get one

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17
Q

Positive and 2negative of overdraft

A

Helps firm deal with cash flow when balance is 0

Bank can withdraw facility at any time
Can work out more expensive than a loan due to high intrest rates

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18
Q

2 Positive and negative of trade credit

A

Goods can pay for repayment for supplier
Helps with cash flow as don’t pay upfront

Normally miss out on a discount due to not paying upfront

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19
Q

Positive and 2 negative of HP

A

Receive items up front while making instalments

Normally works out more expensive than buying outright
Don’t own item till last payment

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20
Q

Positive and 2negative of leasing

A

Equipment can easily be changed if it becomes obsolete which means doesn’t take up finance

Firm never owns equipment
If loaned for a long time could work out more expensive than buying outright

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21
Q

Positive and 2negative of bank loan

A

Firm receives lump sum up front and can spread repayments

Intrest charged which means paying back more than borrowed
Small firms normally charged more intrest

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22
Q

Positive and negative of mortgage

A

Same as bank loan but you own property

If firm doesn’t keep on top of payment of instalments then bank can retake ownership of property which means firm may loose premises

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23
Q

Positive and 2negative of share issue

A

Allows firm to raise large very large amount of finance that doesn’t need paid back

Dilutes values of existing shares
Process of releasing shares is expensive

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24
Q

Positive and 2 negative of venture capatilist

A

Provide expertise aswell as finance

Normally charge high intrest rates for loan
Want part ownership in return also

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25
2 Positive and 2 negative ofdebenture
Allows firm to raise very large sums of money Intrest spread over long time Even if firm makes a loss repayments must be made Debenture holders have right to sell business assets in order for loan to be repayed
26
What is a cash budget
Forecast of all cash going in and out of a firm over a period of time ( normally a year)
27
Name 5 potential cash budget problems
Low sales which has lowered anount of money coming into business Owner taking too many personal drawings Too much money tied up in stock Firm not chasing in unpaid bills Borrowed a loan at too high of an intrest rate
28
7 solutions for a poor cash budget solutions
Organise a source of finance Negoatiate better discounts with suppliers Lease/HP equipment instead of buying, spreads repayments Extended credit period with supplier which means firm has more time to repay debts Chase in oursdiandung bills Shorten time between buying and selling goods Offer discounts to increase sales
29
5 reasons for a cash budget
Allows firm to spot when they have surplus cash and are able to purchase stuff Control the business, eg overdraft being arranged to cover area of low cash Useful to take to appeal for a bank loan Allows firm to set targets for managers and departments Provides a tool for firm to compare budgeted with actual performance
30
How to calculate PFTY
GP - expenses
31
Profit =
Sales - costs
32
GP =
Sales - cost of sales
33
What is cost of sales
Cost of purchases firm has made over previous trading year
34
What does income statement calculate
GP PFTY
35
What is opening stock
Stock firm has at start of finnancial year( ie when a firm opens on first of January the stock it already has on its shelves)
36
What is purchases
Raw materials and products firm buys to make the finished goods
37
What is closing stock
The stock ‘on the shelves’ when a firm finishes a finishes a financial year.bwhich is carried over to next year
38
Cost of sales =
Opening stock + purchases - closing stock
39
GP=
Sales - cost of goods sold
40
Income statement and cash budget examples
Look at booklet
41
6 Expenses examples
Lighting, electrical, rent, advertising costs, delivery costs, repayments of loans ( overheads)
42
PFTY =
GP - expenses
43
Examples of how to cut expenses
Bulk buying Lease equipment Firm can be more energy efficient (turn off lights) Ban personal staff phone calls on company phone Change energy supplier for better deal Ban overtime to reduce wage bill
44
8 Purpose of income statement
Calculate GP calculate cost of sales Shows net sales Calculates total cost of expenses Calculate PFTY shows other incomes AIDS decision making eg what expense to cut Calculate tax that needs payed To compare with previous years
45
What does a statement of financial position do
Shows value of business at particular point in time
46
Non current assets
Items a firm owns and will keep for more than a year
47
Current assets
Items firm owns and will keep for less than a year
48
Current liabilities
Items firm owes and will pay for in short term
49
Working equity
Shows difference between CA and CL Shows funds available after short term debts met
50
PFTY description
Profit made after all business expenses
51
Balance sheet/ statement of financial position example
Look at booklet
52
What are the 3 types of ratios
Probability Liquidity Efficiency
53
What is a probability ratio
Looks at sales or expenses in relation to profits
54
What is a liquidity ratio
Shows ability off firm to pay off its short term debts
55
What is an efficiency ratio
Ratios used to measure efficiency which certain resources have been used within business
56
Name 3 probability ratios
GP % PFTY % ROEE
57
How to calculate GP%
GP/net sales x 100= %
58
What does GP% do
Calculate the % of every 1 pound that goes towards GP
59
How can a firm improve GP%
Increase selling price Find cheaper suppliers Negotiate discounts from supplier Reduce theft or wast
60
How to calculate PFTY %
PFTY/NET SALES x 100=%
61
What does thebPFTY % do
Measures the % of every 1pound that goes towards PFTY
62
How to improve PFTY%
Improve GP identify expenses that can be reduced
63
What is ROEE
Measures return on the capital invested in business by owner
64
How to calculate ROEE
PFTY/opening capital x 100 =%
65
How to improve ROEE
Increase sales and GP Decrease expenses
66
Name the 2 liquidity ratios
Current ratio Acid test ratio
67
Current ratio =
CA/CL
68
What does a current ratio do
Shows ability of a business to pay its short term debts
69
To improve a current ratio
Increase CA decrease CL
70
Acid test ratio =
CAS-Stock/ CL
71
What does acid test ratio show
Ability or firm to pay short term debts inna crisis situation
72
Name the efficiency ratio
ROTI- rate of inventory turnover
73
How to calculate ROTI
Cost of sales / average stock held
74
Average stock =
Closing stock + opening stock / 2
75
3 To improve ROTI
Offer promotions Advertise Eisner stock levels match demand
76
4 Use of ratio analysis
Compare current performance with previous years Compare against competitors Hughlights part of business that needs attention (eg expenses too high) AIDS decision making (eg firm will know when to take out a loan)
77
3 Limitations of ratio analysis
Comparions must be similar (size and industry) Findings don’t take in external PESTEC factirslile a recessionthay would impact sales Findings don’t take in internal factors like low staff morale
78
Name 4 people and why they use finnancial statements
Employees - ensure being paid fair Managers - use it to measure performance Owners/ shareholders - aid decisions at an AGM Suppliers - asses firms ability to pay off debts
79
Name 3 types of technology to be used in finance department
Spreadsheet - performs calculations rapidly and accurately that no human could do -spreadsheets can make graphs so department can spot trends Databases- firm can use these electronically filling systems to record proves and cost of supplies Pay pal- allows customers to pay online which makes more sales and helps control cash flow

Higher Business - Finance (5 decks)

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